Read the Contract and Protect the Consumer

Reporter and book author Bob Sullivan [1] wrote a few weeks ago about his trouble with canceling his cell phone service with Sprint and how the FCC handled his complaint.

In a nutshell, he wanted to get a prorated refund for his final month. He reasoned if he canceled ten days into the month, he should not have to pay for the whole month.

That sounds reasonable to me. But Sprint and almost every other carrier don’t do it that way. No prorated refund for partial month. He complained to the FCC. The FCC basically just bounced it to Sprint, which rejected his complaint because “it’s in the contract.”

The FCC gave him the option to file a formal complaint, which costs $190, far more than the prorated refund he was looking for. Bob actually got a lot farther than an average consumer could because he identified himself as a journalist when he dealt with Sprint and the FCC. If it was Joe Six-pack, he’d still be waiting for replies.

Whenever this type of dispute comes up, there are basically two camps of opinions.

The first camp says “read the contract.” Assuming this surprise feature is in the contract and the consumer is given the contract before he/she signs up for the service, the consumer is supposed to take the whole contract into consideration. If there’s something you don’t like, don’t sign up.

The second camp says “protect the consumer.” The contract should be fair to the consumer. Certain clauses should not be legal even if they are adequately disclosed in the contract in black and white.

I can see merits in both opinions. On one hand, the contract is an agreement between two parties. If you don’t agree, don’t sign it. On the other hand, the contracts are always one sided. Businesses make up the contract. There’s no way for a consumer to negotiate the terms. The best a consumer can do is not sign the contract.

Realistically, nobody shops their cell phone service by comparing the contracts. Consumers expect to be treated fairly. For this reason, I think it’s very inefficient to have every consumer read and consider the entire contract, versus having a consumer protection agency evaluate the contract for fairness. If a consumer is in no position to negotiate the contract, the contract should become legal only if it received a passing score from this consumer protection agency. Then we can all relax a little bit and expect a reasonable level of fairness from our dealing with businesses.

Moreover, mandating the disclosure of the consumer protection score will push businesses toward scoring higher. Then all consumers are better off. If a contract comes with “this contract received a score of 75 for consumer fairness from the Consumer Protection Authority” consumers will be able to ask why it only got 75 versus another service which scored 95 and whether they should use the other service instead.

Before we get there though, I use a prepaid service for my cell phone. It makes it really simple. You buy minutes. You use minutes. There is no contract, no bill, no add-on fees. If you don’t like the service, burn the minutes and stop buying more minutes. Bob Sullivan wrote in a previous article¬†that more than 50% of cell phone service in Europe are prepaid while only 17% of cell phone service in the U.S. are prepaid.

[1] I reviewed his book Gotcha Capitalism last year. It’s a great book.

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